Client Concerns About Information Spillovers from Sharing Audit Partners

47 Pages Posted: 27 Apr 2020

See all articles by Jung Koo Kang

Jung Koo Kang

University of Southern California - Marshall School of Business

Clive S. Lennox

University of Southern California

Vivek Pandey

University of Southern California - Marshall School of Business

Date Written: April 3, 2020

Abstract

We hypothesize that companies in the same product market avoid sharing the same audit partner when they are concerned about possible information spillovers. Consistent with our hypothesis, we find that product market rivals are less likely to share the same partner when they perceive that information spillovers are more costly. While concerns about information spillovers significantly reduce the likelihood of sharing the same audit partner, we find that they do not deter rival companies from sharing the same audit office. Lastly, when companies are unconcerned with information spillovers, we demonstrate that partner sharing can be beneficial resulting in lower audit fees and fewer accounting misstatements.

Keywords: information spillovers; audit partners; proprietary costs; product market rivals; audit fee; audit quality

JEL Classification: M41, M42, D82

Suggested Citation

Kang, Jung Koo and Lennox, Clive and Pandey, Vivek, Client Concerns About Information Spillovers from Sharing Audit Partners (April 3, 2020). Available at SSRN: https://ssrn.com/abstract=3567535 or http://dx.doi.org/10.2139/ssrn.3567535

Jung Koo Kang

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

Clive Lennox (Contact Author)

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

Vivek Pandey

University of Southern California - Marshall School of Business ( email )

Los Angeles, CA
United States

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